A point-of-sale (POS) is the location where a transaction occurs. The point-of-sale often refers to the physical electronic cash register or dedicated POS system used to complete a sale. A POS system may include software, hardware, and peripheral devices to manage the selling process.
A financial transaction is an agreement between a buyer and a seller (merchant) to exchange a good or service for payment. Many different payment options are available today, including cash, checks, gift cards, debit cards, and credit cards.
Credit cards are commonly employed in financial transactions. Typically, at least four parties are involved in a transaction involving a credit card account: the cardholder, the merchant, the acquirer (merchant's bank), and the issuer. The cardholder presents the card as payment to the merchant and the merchant submits the transaction to the acquirer (acquiring bank).
The acquirer verifies the credit card number, the transaction type and the amount with the issuer (card-issuing bank) and reserves that amount of the cardholder's credit limit for the merchant. Authorized transactions are stored in “batches”, which are sent to the acquirer. Batches are typically submitted once per day at the end of the business day. If a transaction is not submitted in the batch, the authorization will stay valid for a period determined by the issuer, after which the held amount will be returned to the cardholder's available credit.
The acquirer sends the batch transactions through the credit card association, which debits the issuers for payment and credits the acquirer. Essentially, the issuer pays the acquirer for the transaction. Once the acquirer has been paid, the acquirer pays the merchant. The merchant receives the amount totaling the funds in the batch minus either the “discount rate,” “mid-qualified rate”, or “non-qualified rate” which are tiers of fees the merchant pays the acquirer for processing the transactions.